Drafting better clauses

17 October, 2018 | Wade Hansen

The standard sale and purchase agreement designed by the Real Estate Institute of New Zealand (REINZ) and the New Zealand Law Society (NZLS) is a wonderful thing, but sometimes it doesn’t cover the special conditions that purchasers (or vendors) want.  And when time is of the essence for getting the sale through, often Real Estate agents are required to draft a new clause for the agreement.

Legal drafting requires a special kind of language and careful consideration of the purpose of the clause.  What are you trying to achieve with the clause?

Clarity

It is imperative that the language you use is clear. Clear drafting will achieve accuracy and the clear understanding of each party’s intentions. To achieve clarity, it is important to clearly identify the objectives of the parties. Once the objectives are clearly ascertained, keep the writing short, simple and straight forward. Too often the language used is padding and waffle – be sure of the words you use and how you put them together. Read it out loud to yourself or to someone else and ask them if it’s clear.

Certainty

Even if the language you use is clear, it must also create certainty to avoid the drafting being considered ambiguous or allowing for different interpretations. One of the most common hiccups we see is the use of “days”, as in the purchaser has 3 days to satisfy a condition. Is this meant to be normal days or working days? Were weekends meant to be counted?

Plain language

To achieve clarity and certainty, it is best practice to use plain language. It doesn’t have to sound fancy or formal. Gone are the times when one sentence took up a whole page containing archaic language. For example, consider which of the following is clearer and easier to understand:

“If for any reason, the parties are unable to reach agreement as to the form of the proposed agreements for sale and purchase, the conditions imposed therein, the plans for development of the land or any other matter relating to other proposed development, this agreement may, at the expiry of six weeks from the date of execution, be voided by either party giving written notice to the other whereupon this agreement shall be at an end. “

Or

“If the parties cannot agree about the sale agreements or the development plans, each party may elect to end this agreement after six weeks by giving the other party written notice. “

Which is easier to understand?

Benefit

Who is to receive the benefit of the clause? For example, with the standard building report clause in the agreement, it benefits the purchaser, enabling the purchaser to cancel if they receive an unsatisfactory report. As you are the vendor’s agent, you always need to consider the vendor’s best option. What if the vendor wanted to have the ability of being able to remedy the defects (ie similar to the LIM condition)?

Dates

It is really important to double check the dates contained in the agreement.  It is becoming common that dates do not match up, fall on non working days and in some cases, leave little or no time between satisfying the condition and settling the transaction. If the purchaser is arranging finance, lawyers generally need a week between the unconditional date and settlement. If they’re using KiwiSaver funds, they’ll need about 3 weeks.

Intention/objectives of the parties

It is important to be clear about what the parties are trying to achieve and to make sure there isn’t any ambiguity enabling one party to use that to their advantage. Do not use abbreviations or short cut any sentences.

Non-satisfaction of the condition

Consider what happens if the clause is not satisfied or if the time elapses. Does the agreement fall over automatically or do the provisions contained in clause 8 of the general terms of sale apply? Don’t be afraid to specifically state what happens.

Breach of the condition

Consider if the conditions are essential (going to the heart of the contract enabling the agreement to be cancelled) or are warranties, meaning that the non-defaulting party only has a right to claim for damages.

If the condition is a warranty, consider mechanisms to resolve the breach such as retention of funds etc. Obviously, a clause like this also needs careful drafting.

In addition to the Agreement for Sale & Purchase, there is also a suite of additional clauses prepared by NZLS and REINZ that you can use.  Alternatively, we are always happy to answer any questions you may have about drafting clauses.

If you would like to discuss the wording of a specific clause, or any matters related to buying and selling residential property, please contact Property Partner, Wade Hansen on 09 837 6885 or at wade.hansen@smithpartners.co.nz